Commentary.

A Once-snubbed Economist's Best Revenge? Success, Of Course

May 29, 1994|By David Warshm, Boston Globe.

People complain about the culture of mathematics in economics, but perhaps the single most damaging custom has to do with the awarding of a medal every other year to the most promising economist about to hit 40.

The Nobel Prize itself is hard enough to make credible, but at least the Swedes are looking back at a lifetime of achievement in weaving some particular design into the tapestry of thought. They can recognize that good people tend to come in clumps, and honor them in some sort of sequence that makes sense.

But the idea behind the turning-40 prize-it's called the John Bates Clark medal-that out of all the sweep and swirl, at the very moment that it's happening, older economists who are themselves party to the various factions in the fray can identify one person and say he or she is emblematic of the future of the discipline is downright stupid.

Take the anointing 10 years ago of James Heckman, professor of economics at the University of Chicago. An econometrician, Heckman is a substantial citizen. His research interests are wide and deep. There is no doubting that he's a gem and there were good reasons for singling him out in 1983. It can't possibly be said that it was wrong.

But the result was that Robert Barro was for an instant eclipsed. Indeed, when the 40-year-old scholar quit Chicago the next fall to return to his old job at the University of Rochester (before moving on to Harvard), there was some reason to believe it was because he was mad.

The fact is that there is nobody on the current economic scene who so nearly resembles Milton Friedman as does Barro, and he seems just faintly out of place in Cambridge, where everybody else seems to be trying, one way or another, to fit in.

But whereas Friedman's fame rests on having led the opposition to the doctrines of John Maynard Keynes, Barro's role in the present-day drama rests on using the same constellation of gifts-bred-in-the-bone empiricism, relentless seriousness about economic ideas, pugnacious conservatism-to participate in the building of an alternative to Keynes. The tools are the loose confederation of ideas derived from the study of industrial organization, international economics and traditional macroeconomics that is now known as the "new growth economics."

Remember, economics since the early 1970s has been divided into two camps, the Good Guys and the Bad Guys, though they often have preferred to be known by their trade names, the New Keynesians and the New Classicals (formerly Keynesians and Monetarists). The Good Guys have hailed from Cambridge and other points East, and their goodness has centered on the search for policies to ameliorate various economic bads, including unemployment, inequality, inflation and the ebb and flow of the business cycle.

The Bad Guys have been for the most part Chicagoans, although sometimes they are associated with the University of Minnesota and the University of Rochester as well. They have stressed the vast intricacy and interdependence of the economic world and in their conviction that markets are adept at circumventing the intended effects of most government policies, they have delighted in throwing cold water on the ideas of the Good Guys.

What the new growth economics is about is seeking that common ground. Paul Romer and Paul Krugman's emphasis in the early 1980s on the economics of knowledge and imperfect competition-historically a Good Guys topic-might have remained an esoteric taste if the University of Chicago's Robert Lucas hadn't put it forward forcefully in a famous lecture in 1985-and he was perhaps the foremost Bad Guy. Moreover, it was Bad Guy Barro who moved it forward, putting his reputation as a New Classical on the line by switching sides.

It's difficult to identify with Barro a particular idea among those of the new growth economics. But the two issues of the Quarterly Journal of Economics that sparkle most brightly with topics in the field were a product of his leadership. Even more, the empirical style that has been a hallmark of the new work-the relentless testing of hypotheses against whatever data are available, the endless comparisons of the economic performance of nations, regions and cities-were for the most part his idea.

With their emphasis on the twin assumptions of "rational expectations" and "clearing markets"-assumptions that most people possessed an intuitive theory about what to expect from policymakers, and that the markets would process all this information efficiently-the New Classicals were greatly expanding the psychological conceptions at economics' core, but only by taking giant leaps, leaps generally unacceptable to the old Keynesians. By 1976 Barro had found a place near the center of the debate with a celebrated paper on "Rational Expectations and the Role of Monetary Policy"; and, along the way, he had written a little-noticed paper, "Are Government Bonds Net Wealth?"